After campaigning for seven years, Melville Rodrigues explains how the UK’s new RIF structure can help funnel pension fund capital into much-needed affordable housing
Seven years is a long time. In 2019 I knocked on the UK Treasury’s door with an idea to fund UK real estate: the Reserved Investor Fund (RIF). Seven years later, my dream of creating a simpler and more cost-effective way of linking institutional investors with essential projects is now reality. This is because the first-ever RIF launched in late July.
The Resonance Housing Pathways Fund looks to provide capital and income growth by investing in and owning residential units, which it then lets to organisations that support occupants classified as homeless. The goal is for the occupants to progress into self-sufficient living, with the rent financed by local housing authorities.
The fund seeks positive social impact in the fight against homelessness – a solution which can help deliver on the pledge by the government, under new prime minister Andy Burnham, to bring an end to homelessness. The fund has UK local authority and other institutional capital of more than £118m (€138m) with an ambition to raise £700m by the end of 2030.
Will the financial floodgates now open for British housing?
Those seven years saw me leading the campaign and advocating for the RIF. I’ve worked with government and regulatory officials. I’ve conferred with UK real estate managers and other industry stakeholders on legislative details. The RIF become an investment structure implemented into UK law last year.
The RIF itself is a new fund idea, predicated on new thinking. It’s onshore, it’s simple and it’s low cost. Operators of – and investors in – RIFs contribute directly to national economic resilience. Fund managers and investors tell me they look for value for money, competitive total expense ratio (TER) and a structure that addresses other due diligence requirements.
For example, a lower TER directly increases net returns for pension and other savers. Disciplined cost structures are essential if affordable housing is to attract institutional investment at scale. I specifically designed the RIF to win the TER and disciplined cost structure prize, compared with other UK and offshore investment structures.
New competitors to established funds
But it’s not just fund managers who like the RIF. There is also a pipeline of developer/landowner-led RIF projects in the built to rent (BTR) market. These are homes to be let at affordable rents to the likes of essential workers.
The developer/landowners see the RIF plugging a UK investment structure gap:
- It has lower costs and more flexibility than existing UK alternatives;
- It competes with offshore investment structures.
Perhaps above all – and this is where the RIF will be innovative for the entire industry – it enables the developer/landowners to gain access to direct pension schemes and other institutional capital, UK and international.
Will such developers/landowners compete with fund managers for capital? It’s too early to tell. What we know is that fund managers are competitive and will welcome the rivalry. Moreover, complex problems require a range of solutions, and housing is one of the most complex problems we have as a nation.
The UK growth story
At a national level, the structure of the RIF aligns impact-focused capital with growth ambitions and social needs, including affordable housing delivery. Housing building is causally linked to economic growth. It is also linked with labour mobility, disposable income, key worker retention and cluster expansion.
We, in the UK, must attract capital that will enhance the supply of such homes. This is notably important when debt finance is prohibitively expensive and government finances are generally stretched.
That said, very welcome catalyst capital is now available from Homes England’s National Housing Bank. It would be reasonable to expect such catalyst capital will be useful for RIF launches.
The lion’s share must come from pension schemes – UK and international – and other institutional investors. Their low cost of capital and strategic focus on patient, inflation‑linked and income‑producing assets aligns naturally with affordable housing.
The government’s pension‑scheme reforms – such as megafunds – support greater investment in UK productivity and growth. We should expect to see more UK local authority and defined contribution pension scheme capital in affordable housing that meets pension scheme expectations – diversification and capital flows via efficient, scalable delivery models.
Watch this space for more RIF launches.
In the process, I hope the RIF contributes to supplying more affordable homes and UK growth more generally – and enhances the UK role as the leading European asset management sector. I continue to live the dream!
